Certain creditors may have special rights (see creditor rights) when faced with collecting bad debts. One of these rights is the availability of a procedure called foreclosure. Foreclosure is most often exercised in relation to unpaid mortgages on real property. In a foreclosure proceeding, the creditor exercises its option under the mortgage to force a sale on the property that is the subject of the mortgage in order to use the proceeds to pay the debt. 

The rights of a mortgage (usually the lender; commonly a bank or mortgage company) when the mortgagor (borrower or home-buyer) defaults vary considerable from state to state. There are, however, a number of similarities. Generally, there are only two types of foreclosure sales: a judicial sale and a sale pursuant to a power of sale clause contained in the mortgage documents. Judicial sales are more common. Although the details of judicial sales are mainly a matter of local law, they usually require notice of a hearing, a hearing, a judicial determination of default, notice of sale, a sale, confirmation of a sale, possible redemption, and entry of a judgment for any deficiency (the difference between the sale amount and what is owed on the debt). 

When a debtor fails to pay his or her debts, the creditor, or the person or business to which the debt is owed, has several available remedies to help collect the money. These methods include remedies that do not require court involvement, called self-help remedies, and remedies that do involve the courts, including pre-judgment legal remedies and formal court proceedings in which a judgment against the debtor is obtained. 

Just as individual consumers do, businesses sometimes find themselves in the uncomfortable position of being unable to pay their debts in a timely manner. In many cases, the solution to this dilemma is to declare bankruptcy, a legal proceeding in a federal court that releases the business from the obligation of paying all or some of its debts. Filing bankruptcy is not a perfect solution, however. Although it is often said that bankruptcy gives a business a fresh start, it can negatively affect the business's credit rating and make it hard to obtain credit in the future. Without good credit, it may be impossible to continue in business. On the other hand, in some types of bankruptcies the bankrupt business actually ceases to exist when the proceedings terminate.